The new norm in shipping

Sanctions compliance: emerges as The new norm in shipping

Daniel A. Tadros, Chief Legal Officer of Shipowners Claims Bureau, Managers of American Steamship Owners Mutual Protection & Indemnity Association, reviews the latest developments in the critical area of sanctions and compliance, that all shipowners need to be aware of as they emerge from lockdown and try to return to business as normal.

Recent advisories and pronouncements by the US demonstrate the US government’s commitment to prevent sanctions evasion, smuggling, criminal activity and facilitation of terrorist activities with a focus on Iran, North Korea, Cuba and Syria. However, the US is now also using sanctions as a means to force changes in the regime of Venezuela.

Ultimately, and as a result of the use of sanctions by the US as a weapon to effect global political change, the need for the maritime community to assess their sanctions risks and to implement compliance controls, has become of paramount importance.

GLOBAL MARITIME ADVISORY On May 14, 2020, the US issued a comprehensive Global Maritime Advisory that set forth new guidelines for the maritime industry. Although not legally binding, the Advisory outlines the expectations of measures that the industry should be taking to ensure that shipowners, marine insurers, flag states and classification societies, among others, collectively adhere to sanctions laws.

The feeling in Washington under the current administration has been that the shipping industry lags behind best compliance practices, like those in place in the banking industry, but yet, shipping accounts for a very large percentage of the world’s trade.

The Advisory no doubt was the product of the US government’s desire to improve the maritime industry’s compliance practices while targeting “bad actors” who consistently ignore sanctions legislation. 1

The end result is that the maritime industry has no choice but to put in place comprehensive compliance programs.

COMPLIANCE PROGRAMMES As a result of the scrutiny now placed on the industry, owners, operators, charterers, flag states, insurers, and others, must have internal policies and procedures that are robust and not merely for show.

The first step in any compliance program, is the recognition of what sanctions laws apply to a company and the trade of its vessels. Knowing whether US, EU, United Nations, or UK sanctions apply, and being aware of the parameters of the applicable sanctions, dictating how a marine operator conducts its business. 2

The next step in a compliance program is the due diligence investigation. Such an investigation can be summarized as: Know your Customer (KYC) and Know your Customer’s Customer (KYCC). Knowing one’s customer and knowing one’s customer’s customer involves seeking answers to the following non-exhaustive list of questions:

On May 14, 2020, the US issued a comprehensive Global Maritime Advisory that set forth new guidelines for the maritime industry.

> Name of vessel, IMO number and flag; > Has there been a recent change in ownership and what are the details of such change in ownership; > What countries are involved in the trade; > What is the origin and destination of the cargo; > What is the nature and type of cargo; > What is the identity and domicile of the cargo shippers and receivers; > What is the identity and domicile of the charters and of the sub-charterers; > What is the purpose for which the cargo will be used; and, > What is the identity and domicile of banks in connection with potential bank guarantees and letters of credit.

Having answers to these questions, allows a marine industry operator to check against applicable sanctions requirements to determine whether the trade is permissible. Moreover, part of a due diligence investigation should be the cross-checking of information with other sources.

Although a company may certainly rely on its internal investigation, it can go a step further by cross-checking with its P&I Club and outside legal counsel well versed in sanctions laws and regulations. The combination of such actions evidences a good faith effort by a company to perform its due diligence and should be sufficient to fend off any threat of non-compliance by government entities.

One scenario that requires special attention is that involving a trade that may be permissible under EU, UK, or UN laws, but elements of the trade implicate US prohibitions applicable to US banks, use of US currency, or cover by US based marine insurers (“secondary sanctions” in the sanctions vernacular). Under such a scenario, a marine operator will have to consider the risk associated with performing the trade and balance that risk against the possibility of losing access to US based financial and insurance sectors. Ultimately, when not sure whether a potential transaction gives rise to

sanctions related concerns, consult legal counsel. WEAPON OF CHOICE The evolution of foreign policy in today’s world has made economic sanctions the weapon of choice for the US Government. To be fair, the US Government has engaged in extensive industry outreach as part of its aim to improve compliance programs in the maritime industry. However, marine operators should recognise that behind the outreach lies an established and tried enforcement machine with numerous diplomatic weapons with far reaching impact. Commercial entities involved in shipping, an industry under the spotlight, should have in place robust compliance policies, procedures and programs. KYC and KYCC should be a part of

every shipping operator’s compliance program.

“The feeling in Washington under the current administration has been that

the shipping industry lags behind best compliance practices, like those in place in the banking industry, but yet, shipping accounts for a very large percentage of the world’s trade.’’

Daniel A. Tadros, Shipowners Claims Bureau

1 The expectation that non-US nationals adhere to US foreign policy in some instances is sometimes at odds with the foreign policies of other countries, including the European Union and the United Kingdom. However, the US Departments of State, Treasury and Justice take the position that a non-US entity or person is free to engage with a US sanctioned country or subject but it cannot expect at the same time to do business with US companies or persons. Ultimately, that may mean no access to US financial services and dollar transactions. The US Government knows that losing access to US markets far outweighs any short-term gain derived from doing business with sanctioned entities and is using it to its advantage to effect the desired geopolitical change.

2 United States sanctions programs are readily available to the public on the Department of Treasury’s website.